Chinese PMI published a few hours ago and I am afraid to say things are still not great. PMI dropped from 52.20 to 51.80 which led to a selloff in Equity markets. On the flip side, the RBA announced some positive data with March retail sales and new home sales (though the AUDUSD remained side-lined trading just sub 0.7500).

Tomorrow we hear from the FED how NFP performed. Economists and pundits looking for a rise to +250k (from +215k previous month). The FED are hoping they are right too given what FED chairwomen Yellen has noted previously that US rate hikes are “data dependent”.

The USD will in all likelihood trade sideways to stronger over the next 24 hours if the predictions for NFP tomorrow turn out to be true. While the USD has weakened somewhat over the past fortnight, I think the rally (EUR) could be coming to an end, for now. I certainly do not believe we will suddenly see the USD rally back through 1.10 (EURUSD) given the delays and comments from the FED/FOMC. There needs to be a consistency of terrific economic data from the US (and China for that matter) if we are to see a move by the USD to rally towards PARITY. Needless to say I think we are a few months out.

Now, US elections will compound the FED’s decision on when to act. It looks like a HILLARY vs THE DONALD fight to the finish line. What the FED are unlikely to do is act in a way that could “skew” the election to either candidate. For this reason I would say that the FED’s next meeting 15 June will be do or die….following June there are meetings on 27 July, 21 September, 2 November and 14 December – so you can see my thought process. Maybe just maybe they could push for a July hike (and December) if all looks good. But think about this, say we start to see consistent (not awesome) data from the US but China still lags and growth falls. Can the FED really be seen to hike rates in the face of a global slowdown? I am ignoring the UK and EU for now as they seem to be trickling along nicely. The FED must act only if they feel and see both China and the US are growing. It is like hoping on one leg in a sack to the line, you are bound to fall and hurt yourself.

The GBP – volatility levels remain sky high….check this out:

1m 9.90/10.45 2m 14.25/15.25 3m 13.15/14.15 6m 11.35/12.30 1y 10.35/11.35 – I have been in the business along time and I cannot remember a time when GBPUSD vols traded with not only such a skew, but more importantly such a spread. This just goes to show how NERVOUS option traders are about the Referendum and what will happen after. With hope the UK will stay in the EU, and we can get on with our lives. Volatility will collapse following the result (REMAIN wins) but if LEAVE wins….FX markets will experience what I believe will be something like 16 September 1992 when the Conservatives withdrew the GBP from the ERM. The GBP will get absolutely positively mauled to the bone.

Be strong and have a good day

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One could argue that like Leicester’s UNBELIEVABLE win in the Premiership, THE DONALD’s rise has been in political terms, meteoric and UNBELIEVABLE in its own right. With Ted Cruz pulling out the race last night, Bloomberg is declaring Mr Trump the winner of the Republicans Presidential nominee race (after winning again in Indiana). One cannot argue that this year’s Presidential race has been incredible, dirty, amazing and outright off the scales. Who would have thought after the controversial comments throughout his campaign, THE DONALD would still be standing, let alone be the winner. No doubt those voting for Mr Trump (Republicans) are looking for a change in the norm and thinking perhaps having a “businessman” running the country the USA will once again be seen as the no. 1 saviour of the globe (economically politically and safety). The hope is MS Clinton will win the Democratic nomination and come November the fight will be on between 2 vastly different nominees. I for one will be glued to the TV watching the results as they come in. Regardless of what the pundits say (and DID THEY GET IT WRONG IN THE PREMIERSHIP) THE DONALD cannot be written off. You simply have to admire the man, should we call him TEFLON DONALD?

The RBA cut rates yesterday by 0.25% to historical low of 1.75% as information showed inflationary pressures were lower than expected (gosh, the SARB would love to see that) and the housing market (prices) cooled allowing the RBA to act. Let’s be honest, the decision to cut rates wasn’t a case of IF but WHEN. We now know the WHEN. The likelihood is the RBA will now sit on their hands in the hope that inflation starts to creep up, and signs of wage growth start to creep into the labour force. On this basis, you could and should see the AUD start to show signs of further weakness vs her main trading partners. Of course the Aussies are still hoping the Chinese turn the corner given that AUD-CNY are their main trading partners. Then again, it is not only the Aussies that are hoping for a Chinese rebound, the FED too have made it clear that global positioning makes it impossible at the moment to raise rates at present.

The GBP had a Super Tuesday rising through 1.47 barrier, only be clawed back (aggressively) on the back of profit taking. The EU Referendum will continue to play havoc with the GBP over the coming couple of months until we know whether the UK electorate has decided to STAY or GO. Following President Obama’s visit and call to STAY, the bookmakers have cut their odds of LEAVING from 24% to 26%. GBP volatility remains elevated with risk reversals still heavily skewed in favour of GBP PUTS (despite the GBP rally over the past few weeks). Next week’s London Mayoral elections will have some bearing on the GBP in that Labour and the Conservatives have vastly different views in how their budgets will be spent (and which will have knock on effects within the financial sector). As the powerhouse of England (and the UK) investors will no doubt be keeping close tabs on what the outcome is. The hope is Zak will continue where Boris left off, and the electorate sees that having the Conservatives back makes financial sense.

The USD remains on the back foot after a series of disappointing economic data and confirmation that the FED are on the sidelines. EURUSD continues to trade over 1.15 (as I write this), while the GBPUSD has fallen from over 1.47 yesterday to trade at 1.4550 presently. USDJPY has also been battered and is described amongst traders as a collapse, to 106.50 – a fall of over 4% in recent weeks. With the latest BoJ news, traders decided it was time to buy the JPY with the risk of negative depo rates becoming more and more a reality.

Volatility is back my friends!!!!

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The dollar has been in retreat at the start of this week. Yesterday, with European markets closed and liquidity light, it probably didn’t take much selling of the greenback to see major dollar crosses move significantly. These moves have seen major dollar crosses approach key technical levels. In my view, it’s more than likely that we are seeing the necessary position cleansing before the dollar starts to rally again. It would make sense as those levels are where I am expecting the new bullish dollar trend to start from.

Here’s weekly chart for EUR/USD, note that equality for the corrective pattern which has been in force for over a year comes in at 1.1775….

And here’s the daily chart for cable (GBP/USD), where what looks like an A-B-C wave (iv) of 5 has seen the currency pair retrace almost exactly 61.8% of the preceding wave 3. From an Elliott Wave theory (EWT) standpoint the bearish GBP/USD trend is still intact and it would take a move above 1.5025 (EWT states that wave 4 cannot violate the territory of wave 1) to invalidate the downtrend.

And finally here, a weekly chart of USD/JPY which has reached a key support level. This is the cross that I’ll be keeping an eye on most because we really are right at the limit on this one. Any further declines and it threatens to call into question the whole bullish dollar rally.

Elsewhere the theme of slowing global growth is still impacting the macro-economy at large, and the Reserve Bank of Australia has reacted accordingly by cutting interest rates to a record low of 1.75%. Despite the stabilisation in China, the reality is that pressure in the domestic housing market and lower inflation has given the Australian central bank room to ease monetary conditions. We see a similar theme in the Eurozone where the European Commission (note.. not the ECB) has cut its forecasts for inflation in 2016 and 2017 blaming lower oil prices and a slower global economy. The IMF has also weighed in cutting the forecast for African growth in 2016 from 4.3% to 3% on the back of lower commodity prices. I’m not sure if that forecast change captures the bounce back in commodity prices, but to be honest, I consider the bounce temporary, there has been no change in the fundamentals that makes me believe it is sustainable. There is nothing that makes me want to retreat from a longer term bullish dollar view either…

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Opinions expressed are subject to change without notice and may differ or be contrary to the opinions or recommendations of ParityFX. Unless stated specifically otherwise, this is not a recommendation, offer or solicitation to buy or sell and any prices or quotations contained herein are indicative only. To the extent permitted by law, ParityFX does not accept any liability arising from the use of this communication.